Must read on the key to business success

I loved this interview. Koch is probably the most successful American businessman that most people have never heard of. Of course, if he keeps saying what he thinks, the MSM will never mention him. Some nuggets:

Mr. Koch is immersed in the ideas of liberty and free markets. Whereas the bookshelves of most of America's leading CEOs are stocked with pop corporate management and "how to succeed" books, Mr. Koch's office is a wall-to-wall shrine to writings in classical economics, or, as he calls it, "the science of liberty." The authors who have had the most profound influence on his own political philosophy include F.A. Hayek, Ludwig von Mises, Joseph Schumpeter, Julian Simon, Paul Johnson and Charles Murray. Mr. Koch says that he experienced an intellectual epiphany in the early 1960s, when he attended a conference on free-market capitalism hosted by the late, great Leonard Reed.

Mr. Koch is by training a scientist, with master's degrees from MIT in nuclear and chemical engineering. Despite his business success, he has no MBA or formal management training. Mr. Koch sees that as an advantage. "Being an engineer, I realized there's an objective reality that helps one understand the rules and conditions that improve the human condition," he says. "Laws and principles that facilitate the advancement of peace, prosperity and social progress are as immutable as the laws that work in science. . . . Politicians often come up with misguided policy solutions," he continues, "because they suffer from Hayek's 'fatal conceit' and believe they can violate basic laws of economics. They are just as misguided as the man who jumps out the 14th floor of a building convinced that he can repeal the law of gravity."

As we continue, Mr. Koch becomes increasingly animated. He discusses another seminal work in his collection, F.A. Harper's 1957 "Why Wages Rise." The book demonstrates "that wages rise not because of unions or government action, but because of marginal productivity gains--people get more money when they produce more value for other people." Then he confides, "I was so thrilled by this revelation that I had what Maslow called a 'peak experience.'"

And:

"Long term success entails constantly discovering new ways to create value for customers and building new capabilities to capture new opportunities," he instructs. "In this sense, maintaining a business is, in reality, liquidating a business." Mr. Koch likens the cycle to Schumpeter's "creative destruction"--where the old and inefficient are ruthlessly swept away by the new.

What we have here are the theories of supply-side economics operating on the micro-level of the firm. Incentives matter; competition fosters innovation; property rights must be firmly established. Koch Industries gives big financial bonuses for entrepreneurial behavior by employees, whether it's a project head or a janitor. The idea is to reward all activities that add to the bottom-line profitability of the firm. "We want our employees to act like owners," Mr. Koch explains. Similarly, employees earn "decision rights" for past successes. "Just as central planning is a failure in running government, so it is at the level of the firm," he says, repeating one of his favorite operating tenets.